Blog Post

Joel Darmstadter: If Not a Carbon Tax and Universality, What Then?

May 15, 2015 | Peter Nelson

RFF's own Joel Darmstadter gave the commencement speech at Penn State's College of Earth and Mineral Sciences' graduation ceremony on May 8. His remarks touched on the very difficult policy challenges associated with addressing climate change against the background of two important impending milestones: the implementation of the Clean Power Plan and the international climate negotiations in Paris this winter.

Remarks by Joel Darmstadter, Senior Fellow, Resources for the Future. May 8 2015

President Barron, Trustee Pope, Dean Easterling, Honored Faculty, Class of 2015, Ladies and Gentlemen:

When a college — whose very name signals attention to the world’s natural resources — honors its graduates in a year when concern over those resources is particularly in the spotlight, it’s a unique occasion. And I’m grateful for having been asked to share in the occasion.

RFF Sr. Fellow Joel Darmstadter

On the key issue of greenhouse warming — my topic tonight — two especially notable milestones await us. In the first case, although it continues to face some defiant hostility, EPA’s ambitious carbon abatement strategy—labeled the “Clean Power Plan”— is due to be implemented within the next several months.

As significant as that achievement will be, it will be followed not long after by perhaps an even more pivotal event: the November international Paris conference — perhaps the last opportunity for some years — to negotiate a global protocol of policies required to confront the climate change threat.

My remarks, which take the science of climate change as a given, are primarily directed to some of those key policy challenges, especially the elusive pursuit of a U.S. and global tax on carbon dioxide emissions, which might help us achieve, rather than merely stumble toward, a multi-country climate accord. (I should add that what you’ll be hearing are my personal views — not necessarily those of my colleagues at Resources for the Future.)

A very old joke pokes fun at some economists’ predilection for theoretically elegant, but useless, solutions. Several marooned and starving fellows, with just one unopened can of beans at hand, turn to the economist in their group, who, without hesitation, says “let us assume we had a can opener.”

A Global Carbon Tax: Advice and Dissent

Fast forward to a proposition you wouldn’t expect to be almost as evasive: let us assume we had a global carbon tax (i.e., a price on carbon) — a measure that would oblige all the world’s countries to limit emissions of CO2 to levels beyond which dangerous climatic change appears likely. A global carbon tax set at, say, around $30 per metric ton of CO2 is meant to avoid the damage that that additional ton would inflict on worldwide society. (Time doesn’t allow consideration of non-carbon greenhouse gases.)

To put the challenge facing the Paris negotiators into a “wakeup-call” perspective, consider some recent projections by the International Energy Agency. The organization estimates that, absent virtually unprecedented new policies, present trends are on a trajectory such that, by 2035, worldwide CO2 emissions will exceed “safe” levels by as much as two-thirds.

One would think that the IEA’s prognosis, shared by numerous other bodies, would boost prospects for adoption of a carbon tax. Consider the indisputably positive features of the carbon tax — transparency, universality, market “friendliness,” minimal ideological flavor, operational simplicity — features around which the judgment of some distinctly different constituencies has managed to coalesce.

Simplicity alone is an especially important point, ensuring a ready and smooth integration of the tax into market transactions. This may be one of the factors that has prompted a large number of certifiably conservative American economists to publicly and forcefully embrace the carbon tax idea. So, too, with William Nordhaus, who, in his impressive 2013 book, The Climate Casino, dissected in great detail the pros and cons of alternative emission-reduction strategies, but in the end, settled on the superiority of, and needed global commitment to, a carbon tax.

Alas, the goal of universal — or at least widespread — participation has itself proven illusory, even on the part of wealthier countries: so far, the U.S., Australia and Canada — never mind China and India — have foresworn a carbon tax, though some 10 countries have adopted token carbon taxes, with the typical share of a country’s carbon emissions to which the tax would apply far below 50 percent. So, the carbon tax approach remains dormant; broadening its appeal remains work in progress.

Let’s briefly consider the American public’s take on the issue. Perhaps surprisingly, but also reassuringly, a recent public opinion poll, jointly undertaken by The New York Times, Resources for the Future, and Stanford University, finds a large majority of respondents support imposition of a carbon tax, provided its proceeds are recycled to the public. (In the U.S., a $30/ton tax might yield gross revenues — i.e., prior to rebate offsets — exceeding a hundred billion dollars.)

But what makes interpretation of the poll finding somewhat murky is that, when questioned about their tolerance for an increased federal gasoline taxunchanged at 18.4 cents/gallon for nearly a quarter century, and leaving the Highway Trust Fund desperate for replenishment — an equally sizeable majority recorded its opposition. If there is something inherently untouchable about gasoline taxes, it seems to be shared by our President, who, having recently been given an opportunity to alter that stand, declined to do so. (Obama: “Gas prices are one of those things that really bug people.”) Yet, in a 2014 interview with New York Times journalist, Tom Friedman, he emphatically expressed the need to “[put] a price on carbon.” Clearly the urgency of both a carbon tax and increased gas tax fails to resonate with Americans. Go figure.

If Not a Carbon Tax and Universality, What Then?

If not a universally adopted carbon tax, what then? Not long ago, in a National Academy of Sciences lecture, Nordhaus outlined a fallback position he deems worthy of serious pursuit. He envisions sets of quantitatively important and cooperating country groupings — he labels these country aggregations “climate clubs” — whose global impact, strengthened by momentum and emulative impulses, might get us as close to the goal of global mitigation coverage as we could realistically expect to attain.

As of now, the EU’s 31-country Emission Trading System, though beset by many growing pains in its 10-year history, comes closest to such a “club” profile. Non-club joiners, whether impelled by free-riding or other reasons, could face trade sanctions imposed by club members. Within a given club, an array of policy tools could be considered for adoption — carbon taxes and cap-and-trade systems among them. At this less-than-universal degree of participation, one club’s embrace of a carbon tax and another’s preference for tradable permits need not be in conflict as long as club abatement commitments were adhered to and summed to a meaningful international total.

A brief aside: Sometimes it takes a village; sometimes, a University. A newly formed Yale University committee — chaired by Nordhaus — has just prompted the school to adopt a three-year pilot program to levy an internal price on its carbon emissions. After three years, the pilot program would become fully operational. PSU: please take note!

What Makes Pursuit of Climate-Policy So Intractable?

What I’ve presented to you is a picture of climate policy issues that remains very disorderly, indistinct, and hard to judge as to firmness of resolve on the part of global leaders and constituencies. As I indicated at the outset, the “fate” of the two upcoming milestones may provide a clearer sense of what lies ahead

In the meantime, it may be worth ticking off four ways that have hindered — and may yet obstruct — a smoother path on this terribly complex challenge facing the U.S. and members of the world community.

  • First, the climate problem and policy options to deal with it demand a long-term perspective. It’s hard to cite a scientific and institutional challenge of remotely comparable dimension — historically or contemporaneously.

Think about some consequences of such a long-term time horizon: costs incurred now target impacts many decades in the future; legislators in the U.S. House of Representatives are compelled to eye re-election campaigns two years hence rather than environmental distress distant decades from now; and recourse to standard accounting practices may tilt to the use of sufficiently high discount rates as to make present-value estimates of future damages seem inconsequential.

  • Second, as a core element, a tax must reflect the worldwide damage inflicted by a ton of a country’s CO2 emissions — irrespective of where that damage occurs which, in any case, is impossible to track.

The inundation of a South Pacific island chain or the severity of West African drought can’t be ascribed to coal-burning power plant releases, in the U.S., China, or Poland — it’s the totality of global atmospheric greenhouse gas concentrations to which emitting countries bear proportionate responsibility that is the heart of the matter.

  • Third, notwithstanding that worldwide aspect, a small, but influential, handful of scholars, both lawyers and economists, without disputing the global-warming threat, do not look kindly at the needed extension of benefit-cost analysis from its historic intra-country to global scope.

That scholarly minority’s rigidity and adherence to orthodoxy is puzzling — not least because it seems to treat economics as a discipline unable to accommodate ethical dimensions within its analytical framework.

  • And finally, there is an unfortunate but, I suppose, unsurprising inclination to unceasingly politicize climate-related issues.

Witness a March statement by the Chairman of the Senate Committee on Environment and Public Works: “These [carbon tax] policies have long been about courting an extremist agenda from environmentalists and expanding government control into every facet of American life.”

(Being thus type-cast, such fellow traveler-proponents of a U.S. carbon tax as George Schultz, Henry Paulson, and Michael Bloomberg may wish to reassess their public image!)

And take, as another current example, the shrill claim of a Presidential “war on coal” — particularly its ostensible impact on Appalachian mining. That area’s formerly robust mining industry and its viable communities have steadily and long seen coal’s center of gravity shift to the Powder River Basin of Wyoming and surrounding states. Why acknowledge facts when greens and climate concerns make for a much more opportune target?

In addressing global warming and sorting through the variety of policy options that confront us, there are — truly — no easy answers. Expressions of hopelessness and cynicism provide momentary cathartic relief but little else. Tonight’s graduates, building on already-acquired disciplinary skills, are ideally positioned to press forward in addressing the global-change challenges I’ve touched on here. New ideas, commitment, avoidance of reflexive prescriptions, tolerance for responsible dissent– that’s about as much counsel as I have the presumption to offer. But do avoid folks peddling can openers!